Handling alimony after tax law changes

On behalf of Miller & Associates, Attorneys LLP posted in Alimony on Tuesday, May 29, 2018.

People planning to file for divorce may be particularly concerned about the financial impact of the end of their marriage. This can be especially true for couples with a high-asset divorce and significant income, as spousal support and alimony may be a factor in the split. There are changes being made to how spousal support is handled in terms of taxation that can be significant for couples who expect to complete their divorce settlements in 2009 and later.

As a result of the Tax Cuts and Jobs Act passed in late 2017, alimony will no longer be tax-deductible to the payer for people who divorce in 2019 or after, although existing agreements are not affected. On the other hand, recipients will no longer pay taxes on the spousal support they receive. This represents a switch of the tax responsibilities for alimony payments that have been in place since 1942. These changes will not apply to anyone who completes their divorce in 2018; however, from January 1, the new tax rules will be in place.

In most cases, this will mean that the IRS will receive a greater sum and that the total amount of income to be considered in spousal support considerations will decrease. This is because taxes will be levied at the rate of the higher-earning former spouse, rather than that of the lower-earning recipient of alimony payments. However, by handling a percentage of spousal support through a tax-restricted account like an IRA, both the payer and recipient can minimize the impact of the rule changes.

The financial impacts of divorce can be significant, and the costs can range from the consequences of asset division to the ongoing expense of spousal support payments. A family law attorney might help a divorcing spouse to advocate for their interests, protect their assets and work to achieve a fair settlement.

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